Dive Brief:
- Tyson Foods is dropping some beef prices for retailers after plant closures caused by coronavirus outbreaks have led to rising costs, The Wall Street Journal reported.
- The company is planning to lower prices for roasts, ground beef and other products by as much as 20% to 30% for sales made to grocers, restaurants and other retailers this week.
- Tyson's CEO Noel White told the publication that the discounts would allow beef to stay affordable. The move is also expected to help farmers who are working through a backlog of cattle.
Dive Insight:
As shoppers start to shift from stockpiling to cost cutting because of the economy, the high demand for meat products could start to fall as prices continue to rise. This move by Tyson to lower prices to retailers for the week could encourage more consumers to buy beef and help clear out the supply chain that is strained by closed processing plants.
Since employees in meatpacking plants work in close quarters, the virus has spread quickly among them, with thousands testing positive for coronavirus and at least 20 dying as a result. More than 20 meatpacking plants, including operations run by Tyson Foods, have closed temporarily or indefinitely to slow the spread of the virus. Those closures led to concerns about supply, with Tyson's chairman writing in a newspaper ad that the "food supply chain is breaking."
As a result, production of pork, beef and other red meats across the country last week was roughly 28% lower than the same time last year, and beef production in the second quarter of this year could be even lower than those levels, according to USDA estimates reported by The Journal. Because of the drop in production, retailers are paying more for products. Ground beef wholesale prices have more than tripled since early March, according to the USDA. Tyson's discount could help retailers afford to buy more products without raising prices to consumers.
More plants have reopened since President Donald Trump signed an executive order designating meat processing plants as "critical infrastructure." Although critics said the order could endanger more workers, companies and the industry praised the move for helping to get the supply chain moving again.
Even as meat plants have reopened, analysts have predicted that empty meat cases and high prices could be coming. A recent report from CoBank found that even if the reduced processing capacity is just short term, meat supplies for grocers could plummet 30% by Memorial Day, resulting in pork and beef price increases as high as 20% compared to last year.
While meat sales have been rising since the outbreaks started to spread in the U.S., Tyson and other big meat processors have been heavily scrutinized because the surge hasn't helped profits for producers. Wholesale prices for beef have increased nearly 20%, but the price paid to ranchers has dropped 11% since January, Fern’s Ag Insider reported. Last month, cattle associations in 23 states sent a letter urging the U.S. Attorney General and the Justice Department to launch an investigation into possible anti-competitive actions in the meat industry.
As it faces these accusations, Tyson's earnings this month weren't so bright. The company reported its Q2 net income dropped 15% from a year ago as production disruptions hurt its results. However, discounted beef products could help preserve demand as processing plants start to go back to normal production. Since beef represented more than a third of the company's sales last year, a lot is depending on how this pandemic continues to impact its earnings.